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Questions and Answers
What occurs in the presence of a positive externality and its effect on the optimal quantity of education?
What occurs in the presence of a positive externality and its effect on the optimal quantity of education?
Which of the following statements correctly describes the relationship between QMARKET and QOPTIMUM?
Which of the following statements correctly describes the relationship between QMARKET and QOPTIMUM?
How does the alignment of private value and social value affect the supply of education?
How does the alignment of private value and social value affect the supply of education?
What is the significance of the equilibrium point in relation to the social optimum?
What is the significance of the equilibrium point in relation to the social optimum?
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What role do external benefits play in determining the social optimum for education?
What role do external benefits play in determining the social optimum for education?
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What characterizes the optimal quantity produced in connection to negative externalities?
What characterizes the optimal quantity produced in connection to negative externalities?
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How does the government correct market failure associated with externalities?
How does the government correct market failure associated with externalities?
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In the context of positive externalities, what is a primary benefit of education?
In the context of positive externalities, what is a primary benefit of education?
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What occurs to the social value curve in relation to demand when considering positive externalities?
What occurs to the social value curve in relation to demand when considering positive externalities?
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What is the implication of producing at an optimal quantity in relation to market equilibrium?
What is the implication of producing at an optimal quantity in relation to market equilibrium?
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Which of the following is NOT a characteristic of negative externalities?
Which of the following is NOT a characteristic of negative externalities?
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How can incentives be altered to address negative externalities?
How can incentives be altered to address negative externalities?
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Which of the following statements about the market equilibrium quantity is true regarding the optimal quantity?
Which of the following statements about the market equilibrium quantity is true regarding the optimal quantity?
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What is the effect of positive externalities on market equilibrium quantity?
What is the effect of positive externalities on market equilibrium quantity?
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What measure can the government use to correct market failures due to negative externalities?
What measure can the government use to correct market failures due to negative externalities?
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How do positive externalities typically affect the market's production level?
How do positive externalities typically affect the market's production level?
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What is one potential solution for internalizing technology spillovers?
What is one potential solution for internalizing technology spillovers?
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What is the primary motivation for the government to provide subsidies related to market externalities?
What is the primary motivation for the government to provide subsidies related to market externalities?
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In the context of negative externalities, why does the market produce more than is socially desirable?
In the context of negative externalities, why does the market produce more than is socially desirable?
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When dealing with positive externalities, what is the outcome of government intervention through subsidies?
When dealing with positive externalities, what is the outcome of government intervention through subsidies?
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What is one key characteristic of technology spillovers as a positive externality?
What is one key characteristic of technology spillovers as a positive externality?
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Which of the following best describes the relationship between market equilibrium and social optimum in the presence of positive externalities?
Which of the following best describes the relationship between market equilibrium and social optimum in the presence of positive externalities?
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What is the primary purpose of tradable pollution permits?
What is the primary purpose of tradable pollution permits?
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In what way does the government typically react to the existence of negative externalities in a market?
In what way does the government typically react to the existence of negative externalities in a market?
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How does a firm's willingness to pay for pollution permits typically relate to its cost of reducing pollution?
How does a firm's willingness to pay for pollution permits typically relate to its cost of reducing pollution?
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What is an advantage of a free market for pollution permits?
What is an advantage of a free market for pollution permits?
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When a firm can reduce pollution at a low cost, what is its likely action regarding pollution permits?
When a firm can reduce pollution at a low cost, what is its likely action regarding pollution permits?
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Factors affecting the market for tradeable pollution permits include all of the following except:
Factors affecting the market for tradeable pollution permits include all of the following except:
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Which of the following best describes the concept of 'scarce resource' in the context of pollution permits?
Which of the following best describes the concept of 'scarce resource' in the context of pollution permits?
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What dynamic occurs when firms who can reduce pollution at low costs sell their permits?
What dynamic occurs when firms who can reduce pollution at low costs sell their permits?
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The efficient final allocation of pollution permits leads to which outcome for firms facing high pollution reduction costs?
The efficient final allocation of pollution permits leads to which outcome for firms facing high pollution reduction costs?
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What is a key condition for private parties to effectively resolve externalities according to the Coase theorem?
What is a key condition for private parties to effectively resolve externalities according to the Coase theorem?
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Which factor can hinder the effectiveness of private solutions to externalities?
Which factor can hinder the effectiveness of private solutions to externalities?
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What outcome does the Coase theorem suggest can occur when parties successfully bargain?
What outcome does the Coase theorem suggest can occur when parties successfully bargain?
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What is an example of a commitment made by Thailand in relation to the Paris Agreement?
What is an example of a commitment made by Thailand in relation to the Paris Agreement?
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What are the implications of having a large number of interested parties when addressing externalities?
What are the implications of having a large number of interested parties when addressing externalities?
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What is the main difference between carbon neutrality and net zero?
What is the main difference between carbon neutrality and net zero?
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Which of the following describes a condition where bargaining might break down?
Which of the following describes a condition where bargaining might break down?
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In the context of the Coase theorem, what is meant by 'initial distribution of rights'?
In the context of the Coase theorem, what is meant by 'initial distribution of rights'?
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Study Notes
Externalities & Market Inefficiency
- Negative externalities occur when there is a cost to a third party not involved in the production or consumption of a good
- The optimal quantity produced, QOPTIMUM, is smaller than the market equilibrium quantity, QMARKET
- The government can internalize the externality by altering incentives so people take account of the external effects of their actions
Positive Externalities
- Positive externalities occur when there is a benefit to a third party not involved in the production or consumption of a good
- Examples include education, government, lower crime rates, and increased productivity and wages
- The optimal quantity, QOPTIMUM, is larger than the market equilibrium quantity, QMARKET
- The government can internalize the externality with subsidies
Technology Spillovers
- A technology spillover is a positive externality
- It occurs when a firm's research and production efforts impact another firm's access to technological advancements
- The government can correct the market failure by providing a subsidy equal to the value of the technology spillover
Public Policies Toward Externalities
- Tradable pollution permits are a market-based approach to solving the problem of pollution
- Firms can voluntarily transfer the right to pollute to each other
- Permits become a new scarce resource with a market to trade them
- The firm's willingness to pay for a pollution permit depends on the cost of reducing pollution
- Tradable pollution permits are efficient because firms that can reduce pollution at a low cost will sell permits and firms that can reduce pollution at a high cost will buy permits
Private Solutions to Externalities
- The Coase Theorem states that if parties can bargain without cost they can solve the problem of externalities on their own
- The social optimum can be reached through negotiation between the polluter and the victim of the pollution
- Private solutions do not always work due to high transaction costs and a large number of interested parties
Thailand’s Commitments to Paris Agreement
- Thailand has committed to a 30% reduction in carbon emissions by 2030
- Thailand has committed to carbon neutrality by 2050
- Thailand has committed to net zero emissions by 2065
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Description
This quiz explores the concepts of negative and positive externalities and their effects on market efficiency. It covers how government interventions can help internalize these externalities, along with examples such as education and technology spillovers. Test your understanding of how these economic phenomena influence production and consumption decisions.